Shares of Micron Technology (MU 1.13%) fell 25.1% in June, according to data provided by S&P Global Market Intelligence. The stock fell sharply earlier this month as investors and analysts are currently nervous about the semiconductor space. And towards the end of June, Micron announced financial results that sent the stock falling further.
One way to track market sentiment for an entire industry is to look at an industry-specific exchange-traded fund (ETF). In the semiconductor space, there are many options, one of which is iShares Semiconductor ETF. As the chart shows, investors didn’t care too much about semiconductor stocks in general in June, which dampened Micron shares.
Supply chain challenges and a slowing tech space have investors worried about near-term semiconductor demand. And that’s why the whole space was down in June.
The chart shows two major instances where Micron stock has underperformed the semiconductor space: once at the start of the month and once at the end of the month. Piper Sandler Analyst Harsh Kumar could be the reason Micron stock fell earlier this month. According to The Fly, Kumar lowered Micron’s stock price target by 22% to $70 per share, citing a slowdown in consumer electronics. Micron sells memory products used in consumer electronics and is therefore more sensitive than most in this regard.
On June 30, Micron released its financial results for the third fiscal quarter of 2022. And the third quarter results were anything but slow. The company posted record quarterly revenue of $8.6 billion, up 16% year-over-year. And with that record revenue, it posted a solid net profit of $2.6 billion.
However, analysts did not like Micron’s forecast, explaining the second decline. Management expects to generate between $6.8 billion and $7.6 billion in revenue in the fourth quarter. In my opinion, there are two takeaways from this advice. First, at the midpoint of the forecast, this represents a 13% year-over-year decline – a rapid reversal of its pace in the third quarter. Additionally, there is an $800 million range in the revenue forecast, reflecting inordinate uncertainty on the part of management over the next three months alone.
If management is so uncertain about its business outlook in the next quarter, how much more uncertain is it for fiscal 2023? This uncertainty is a major reason why investors are avoiding Micron shares at the moment.
Micron’s memory products are subject to a delicate balance between supply and demand. The demand is almost always there to some degree. But sometimes the market is flooded with memory products. When this happens, Micron always sells a lot of units. But the units are priced lower, hurting revenue and profit margins.
Heading into fiscal 2023, Micron’s management is trying to scale back its supply growth to maintain the best possible profitability. It’s not good for growth. But it could help preserve cash flow and allow management to reward shareholders through share buybacks and its dividend.